Penalty Cannot Survive After Assessment Is Set Aside

Anshu Priyadarshini Vs ITO (ITAT Delhi)

When Assessment Falls, Penalty Can’t Stand: ITAT Delhi Quashes 271(1)(c) Penalty After De-novo Remand

The Delhi ITAT “SMC” Bench, comprising Shri Vikas Awasthy (Judicial Member), allowed the appeal of Anshu Priyadarshini for AY 2011-12 and set aside the penalty levied u/s 271(1)(c), holding that the penalty proceedings could not survive once the underlying assessment was restored for de-novo adjudication

The penalty had been levied on additions made in the assessment order dated 15.12.2018 passed u/s 144/147. However, the Tribunal had earlier, in the Assessee’s quantum appeal (ITA No.1576/Del/2024, order dated 14.08.2024), set aside the assessment order and remanded the matter to the AO for fresh assessment.

The ITAT held that since the substratum for levy of penalty had been erased, the consequential penalty could not stand independently. Once the very basis of the additions is unsettled and the assessment is open for re-examination, penalty proceedings become infructuous.

The Revenue fairly conceded the legal position. Accordingly, the Tribunal quashed the impugned penalty order and allowed the appeal of the Assessee.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of Commissions of Income Tax-(Appeals) (hereinafter referred to as ‘the CIT(A)’) dated 18.09.2025 confirming penalty levied u/s.271(1)(C) of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’), for AY 2011-12.

.2. Shri Abhinarayan Mishra, appearing on behalf of the assessee submitted that the Tribunal in assessee’s appeal on merits in ITA 1576/Del/2024 vide order 14.08.2024 has restored the case back to the Assessing Officer (AO) for de-novo assessment. The present appeal is in respect of penalty levied by the AO on the additions made in assessment order dated 15.12.2018 passed u/s.144/147 of the Act. Since, the assessment order has been set aside by the Tribunal, the penalty proceedings arising therefrom would not survive.

3. Shri Keshav Kishore Anand, representing the department fairly stated that the Tribunal has restored the matter back to the AO for denovo assessment.

4. Both sides heard. It is an admitted fact that the Tribunal in ITA 1576/Del/2024 for AY 2011-12 vide order dated 14.08.2024 has restored case of the assessee to AO for denovo assessment. Since, the substratum for levy of penalty has eroded the penalty would not survive.

5. In the result, impugned order is set aside and appeal of the assessee is allowed.

Order pronounced in the open court on Wednesday the 17th day of December, 2025.